The devastating effects of this recession on all aspects of Irish society need no introduction. However, tough as times undoubtedly are, there are still a series of practical steps that all organisations can introduce to alleviate the strain on operations.
If as is usually the case, there is a shortfall between what you forecast you can earn and what you need to spend in the coming year, you have to find ways of closing the gap. If you can raise more income, well and good, but note if that has associated costs and provide for them in the expenditure part of your budget. It may be worth having a brainstorming session to see if you can come up with new fundraising ideas – difficult economic times are the most fruitful in terms of innovation in business and this should apply to non-profit organisations also.
Further Resources available at bottom of the page
In most operational budgets there are a few big items and a lot of little ones. If you need to cut 25% from your forecast budget and all of the little ones amount to 10% in total, it is clear that you will need to tackle the biggest ones also, even if they represent your core resources. It may be that your best case scenario requires a cut of 5% and your worst case 25%, in which case, one option would be to go for the 5% cut now and to develop a contingency plan for much larger cuts depending on what happens. Do not leave it too late to make the deeper cuts if the worst case scenario looks like being the realistic scenario.
Only the organisation can make decisions as to what to cut, but do so on the basis of your core values. There is not much point of cutting all of the funding
needed to deliver a service and keeping the staff on the books but unable to do anything. Try and develop options – are there different levels of service you could offer some of your clients while still meeting their needs? If you spent some funds on say, new communication methods or on innovative ways of delivering the services can you provide as good a service in a different way? Engage all your staff in looking for solutions, the people who are likely to have the best ideas are on the front line of delivering services.
Below you will find practical advice on how to cut costs while ensuring you retain your ability to function at the same high standard of operations:
Staffing Costs
In relation to staff, while staff working for non-profit organisations are not usually highly paid in general, staff costs tend to be our largest expense. If times are really hard and you are considering having to consider redundancies, perhaps you could consider some alternative ways of reducing staff costs e.g. pay cuts (heavier at the top than at the bottom, and voluntary), short term working, shorter hours etc.,. If you decide that you have to make people redundant, make sure that you treat people fairly, obeying the letter of the law as a minimum.
But also consider appropriate ways to keep your most productive and flexible staff on your books, so that you can best survive difficult times. (For this reason, the traditional last in first out or LIFO system is much less frequently used nowadays, and you must be very careful that the system you do use is fair and non-discriminatory). Make sure you provide for redundancy costs in your calculations, they will reduce your savings in the short term. You will get some funds back from the Department of Enterprise, Trade and Employment, but this takes time and you have to pay your departing employees as they leave.
Fundraising Costs
Can your fundraising costs be reduced, or should they be increased to do more of what you are doing at present or something different to bring in more funds? Do you always do the same things? Are they yielding more money
every year, or are they declining? Is your message dated? The various techniques for reviewing fundraising are beyond the scope of this paper, but it is important not just to roll over what you have done before. In hard financial times, it may be counter productive to automatically cut expenditure on fundraising in line with other cuts, when it is this activity that holds the key to
the organisation’s financial future. Reviewing expenditure on fundraising is definitely required, and you may find that the most sensible and strategic route to take is to increase funding on fundraising expenses.
Service Providers
Your costs with various service providers may be limited, but there may be savings to be obtained by reviewing offerings for utilities and rent, bank charges etc. Perhaps you can cut your costs further by, instead of outsourcing your IT needs, you invest instead in training a suitable member of staff to handle these needs internally - in that way, a little up front expenditure could well lead to significant savings down the line.
If you do not do so already, you might consider joining or setting up a group of similar organisations to seek a group discount. You should be careful to ensure that the billing arrangements for such propositions do not expose your organisation to debts rightly belonging elsewhere.
Consider a Merger
Could you merge your organisation with another and save funds? If so, this may be an excellent route, but it is a longer term option, not a short-term fix. It also takes up-front investment and is definitely not cost-free in terms of non-cash costs like staff and board members’ time and energy. Do out a business case for the merger in each organisation, setting out how it could be done and what the costs would be. Do not underestimate the costs and time involved in doing this and the dangers of loss of service to clients by both organisations. You may well need to engage legal/accounting advice to deal with pooling of reserves for example and any covenants/contracts you have with donors. Very many business mergers fail to deliver synergies as they are poorly planned and executed, and too much is paid by one company for another.
Make sure that you plan carefully and take account of the need to merge the people as well as the services. It is critical that you communicate clearly and honestly with the staff and bring people with you. If there are to be redundancies, make sure that you retain the most effective and flexible staff who are willing to commit to the new organisation.
Back-office Services
A less ambitious target and one which might be a stepping stone to longer term merger would be to merge back-office services – accounting/admin support etc. You need to look at what is currently provided in each of the organisations and work out how/if funds could be saved. The structure of the arrangements would have to be worked out carefully and with some legal and accounting advice. Would one organisation offer all services to the other(s) at cost, taking over some staff with others let go? Would different organisations offer different elements of the service? What protections in respect of data and in respect of payments would be required? There needs to be a contract to govern whatever arrangements are made. Again, there is a need for a business plan to identify what can be done and how and with what costs and benefits.
Further Resources
From The Wheel:
External resources:
This informative guide lays out the potential benefits of a merger (UK):
